Energy-efficient technologies offer considerable promise for reducing the financial costs and environmental damages associated with energy use, but it has long been observed that these technologies may not be adopted by individuals and firms to the degree that might be justified, even on a purely financial basis. We survey the relevant literature on this "energy-efficiency gap" by presenting two complementary frameworks. First, we divide potential explanations for the energy-efficiency gap into three categories: market failures, behavioral explanations, and model and measurement errors. Second, we organize previous research in terms of the fundamental elements of cost-minimizing energy-efficiency decisions. This provides a decomposition that organizes thinking around four questions. First, are product offerings and pricing economically efficient? Second, are energy operating costs inefficiently priced and/or understood? Third, are product choices cost minimizing in present value terms? Fourth, do other costs inhibit more energy-efficient decisions? We synthesize academic research on these questions, with an emphasis on recent empirical findings, and offer suggestions for future research.
This article reviews the design of environmental markets for pollution control over the past 30 years, and identifies key market-design lessons for future applications. The focus is on a subset of the cap-and-trade systems that have been implemented, planned, or proposed around the world. Three criteria led us to the selection of systems for review. First, among the broader class of tradable permit systems, our focus is exclusively on cap-and-trade mechanisms, thereby excluding emission-reduction-credit or offset programmes. Second, among cap-and-trade mechanisms, we examine only those that target pollution abatement, and so we do not include applications to natural resource management, such as individual transferable quota systems used to regulate fisheries. Third, we focus on the most prominent applications—those that are particularly important environmentally, economically, or both.
Trump’s decision to withdraw the nation from the Paris climate agreement was not based on science or sound economics, but on a confused, misguided, and simply dishonest desire to score some short-term political points with his voters. What he sacrifices in the long term will be immensely more difficult for the country to win back at the ballot box: authority, credibility, and influence.
This essay provides one economist’s perspective on the two-decade evolution of the field of environmental economics, by tracing it through personal reflections on the professional path that has led to my research and writing. Also, the article summarizes the highlights of some of my research and writing during this period.